February 1, 2017 by Leave a Comment
This is the third article in a weekly series highlighting trends and themes from Celent’s Model Bank submission process. Dan Latimore and Zil Bareisis led off with two great pieces on the evolution of the Model Bank Awards. Articles from this week on will explore some of the broader themes within each category. Customer experience initiatives are typically the most numerous. While this makes the category more difficult to judge, it offers immense insight into what’s happening in the market. The standards of customer engagement are constantly changing, and banks are experimenting with new ways to drive increased satisfaction, higher revenue, and greater loyalty. Three themes stand out this year. Digital banking subsidiaries: Many banks are finding that existing systems are too rigid to accommodate a truly digital experience. A number of customer experience submissions this year focus on building out separate digital subsidiary brands within traditional institutions. Banks are typically going in two different directions. The first is a digital subsidiary as an offshoot of the parent bank. These brands are basically separate products that offer a digital-first experience to a certain demographic, but are closely tied to the main bank. Brands are similar and products/ services are frequently cross-sold. The second type is a completely separate brand ring-fenced under a different technology stack, operating under the umbrella of the parent organization but effectively a separate entity. These banks may leverage the parent for product support, but are usually sandboxes for “testing” digital. Submissions were a mix of the two approaches. Fintech partnerships: The shift from disruptive to collaborative relationships between financial services and Fintech startups feature prominently in this year’s award submissions. They range from standard B2B vendor relationships to more advanced functional partnerships where portions of the Fintech’s offering is exposed within the traditional institutions digital UI. Initiatives reflect the growing acceptance among the industry that banks can’t be all things to all people. Institutions are acknowledging the valuable and complementary role Fintech can play in providing a modern, innovative customer experience. AI and bot technology: Bursting out of the gate in 2015/16, Banks have begun a mad dash towards AI and other bot technologies. This is a broad spectrum of projects that include everything from simple bots to cognitive computing. Submissions this year show institutions spreading their resources across many different applications. Like any emerging technology, most institutions are in a “test and learn” phase. These technologies are at varying levels of maturity, but the potential to revolutionize the customer experience through AI may be truly transformational, and Celent was pleased to see so many projects in this space. This is just a taste of what we’ll have in store at the 10th annual Innovation and Insight Day on April 4th in Boston. We’ll be diving much deeper into the various topics, revealing the winners of all the awards, and discussing how they combined serious innovation with tangible business benefits to stand out from so many strong contenders. I look forward to seeing you all there.
November 30, 2015 by Leave a Comment
Fintech is booming. In 2013, according to a report by Accenture and CB Insights, total investment into FinTech was just less than $4 billion. By 2014 it ballooned to more than $12 billion globally, with 750 deals. Many are claiming the death of traditional banks, but I’m not sure these claims have merit. Banks are surely slow to move with trends, but the barriers to entry act to partially insulate the industry from rapid disintermediation. Yet neither can institutions continue without any change to the operating model. Banks will need to adapt to new behavioral patterns and trends in technology. Success for banks will require a change in mindset. They need to start looking at FinTech startups as an opportunity, not a threat. Many banks have already started acting, and it’s time for fast followers to get on board and employ a few of the following strategies: Partnering with startups The easiest and most accessible way of engaging new startups is through partnership. From a technological perspective, the evolution of technology deployment has made it easier than ever for banks to engage in strategic partnerships. This can be as simple as an agreement between entities to drive referrals or route website traffic (e.g. Santander UK with Funding Circle and Union Bank with Lending Club) to more complicated engagements where new services are plugged into a banks’ existing digital banking platform through APIs. Fidor Bank in Germany has architected its own completely open platform, allowing it to plug in new innovative offerings and enable customers to take full advantage of emerging services. Acquiring FinTech The main benefit of acquisition is that these companies are largely already established. The company has a culture that has been shown to be successful, and there is an existing base of customers from which to grow. Often the injection of new capital by the buyer can give a startup the resources needed to flourish. The risk is that as these offerings are brought closer to the parent company, the legacy processes and functions bleed into the new acquisition, hampering growth and essentially killing the viability of the product. The acquisition of Simple by BBVA Compass is one of the most visible acquisitions in recent years. It remains to be seen how the two businesses come together, and what role Simple will play in the larger BBVA vision, but the deal offers an example for other banks to follow. Launching venture capital business units A number of institutions are establishing venture funds to actively invest in startups from the beginning. Most notable is BBVA Ventures, which has already invested in companies like FreeMonee, SumUp, and Radius, and which plans on spending more than $100 million on new projects over the next year. In October 2015, Santander InnoVentures $4 million in the block chain payments startup Ripple Labs, also investing in MyCheck, Cyanogen, and iZettle. HSBC has said that it will start a venture fund with up to $200 million in investments. Wells Fargo, Citibank, and others in the US have also started going down this path, both starting funds of around $100 million within the Silicon Valley. While this is a good way to get deep into emerging disruptors, it’s also relatively prohibitive, and all but the top banks are going to find this route difficult. Every year more and more startup companies are launched; a strategy for innovation and cooperation with these challengers would be remiss without understanding the landscape. With this in mind, Celent is beginning a series of quarterly reports that will profile 7-10 startup companies, providing some analysis about the business model and opportunity for financial institutions. Look for the report series Innovation Quarterly: The Latest in Fintech Innovation to kick off in Q4 2015.
September 30, 2015 by Leave a Comment
A few weeks ago, Dan Latimore and I had the chance to attend Finnosummit in Mexico City. While Dan was the one really working (he presented on “How Big Data can change Financial Services”) I mingled around the participants of this vibrant ecosystem encompassing entrepreneurs, financial institutions, investors, and regulators among other stakeholders. It is amazing how the ecosystem continues to grow and how fintech start-ups are booming. Celent has been collaborating to help create the fintech ecosystem in the Latin American region since its inception and I had the honor, for 2nd time, to judge the fintech start-ups participating in the BBVA Open Talent, which brought the Latin American finalists into town as part of Finnosummit. They had their 5 minutes of glory (or suffering) by pitching their venture to the audience and two winners were selected at the end of the day. Discover the finalists of all regions here. In Latin America two chilean start-ups were the winners: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin. In the US & RoW the two winners were: ModernLend enables users with no credit profile to create one in just 6 months by using alternate metrics; and LendingFront which facilitates short term commercial lending through a simple platform. In Europa the winners were Everledger, specialized in anti-fraud technology for financial services and insurance; and Origin an electronic platform that facilitates bond issuing in the capital markets. Many fintech startups that made it to the finals focus on Blockchain technology and payments. These seem to be the areas of major investment for the last two years. If you are interested in these themes I suggest that you follow my colleagues John Dwyer, Zilvinas Bareisis and Gareth Lodge. Coming back to Dan’s presentation, he made a very interesting observation around the need to move from the old paradigm (Customer response optimization) to a new paradigm (Anticipate and shape customer intent) based on the use of big data and analytics, but also warning that disruptors are out there applying the new paradigm today. If you want to get deeper into any of the subjects covered here, please let me know. By the way, is there any fintech start-up you believe has great potential? Share with us please!
December 1, 2014 by Leave a Comment
The rumors have been swirling for some time now that Moven was going to sign up a Canadian bank. This was announced today and I read about it in The Globe and Mail. Curiously, the article is titled, “TD Bank helps its customers pinch pennies with new app.” What does this mean exactly for Moven and TD? Is TD going to start a digital only bank/account or are they merely going to add PFM capabilities? It’s not clear to me if this will require the opening of a new account or not. I’m also not clear on if this will be a separate app or if it will be integrated into the existing TD apps. It is however quite clear that TD is honing in on PFM capabilities.
“We’ve been interested in [personal financial management], but adoption is very low.” – Rizwan Khalfan, SVP and Chief Digital Officer, TD Bank GroupThe Canadian banking scene is super conservative, so this is no doubt an interesting move. This deal can provide great opportunities and also comes with some challenges. Great opportunities:
- Banks absolutely need to try new things. Kudos to TD for taking a leap here in an effort to innovate and try something new. Their recent mobile wallet announcement is another great example.
- Canadian consumers could benefit from new, exciting and useful mobile tools. The Canadian mobile landscape has been pretty quiet, with the most recent “innovation” being the launch of mobile remote deposit capture by some of the banks. There have been interesting mobile payments announcements (e.g. RBC and Bionym), but not much as it relates to classic banking.
- Consumers need help managing their money and turn to their bank for advice. Our US consumer survey and Canadian consumer survey point quite clearly to this. Americans and Canadians prefer to use bank provided tools to manage their personal finances.
- Adding features to TD’s simplistic mobile app could present technical and user experience challenges. Moven has a keen focus on the user experience. The existing TD smartphone app – well, not so much. TD’s Canadian tablet app is slow and buggy. We could not even install this app on our Android test tablets due to compatibility issues. This leads me to believe that TD will either completely overhaul their app or release Moven as a separate app/account.
- Most PFM endeavours have not been very successful when it comes to customer adoption. Will Moven and TD manage to figure out how to get customers on board and actively using PFM? This is going to be extremely challenging. Celent has done all kinds of research on PFM and will be publishing a fresh report on this topic in the new year. The report will encourage banks to take a completely different approach to PFM – stay tuned for our insights on this topic.
- The viability of a digital only bank is questionable. Can Canada or the United States sustain a digital only bank? Is there a future for the neobanks? See the following blog post for our viewpoint on this. The Canadian bank switch rate is quite low overall, though it is quite high (13% in 2013) for the 18-25 year old segment. Neobanks have a place, though they will have difficulty being successful in the near term.
October 22, 2014 by 6 Comments
The digital transformation in financial services is about the move from the physical to the virtual world, from person-to-person interaction toward person-to-machine or machine-to-machine. It is Celent’s view that Integrating and coordinating among disparate and siloed delivery channels will be critical to satisfying ever-increasing customer expectations. This in part encompasses looking at how financial institutions relate with their customers and ecosystem, but also about the underlying infrastructure and processes required to provide a digital experience. It also encompasses re-thinking how a branch should look like and what services it should provide as an integral part of the customer experience. In this context I had the chance to moderate a panel during last week Next Bank Americas. With the participation of Hugo Nájera Alva – Head of Digital Banking at BBVA Bancomer, Miguel Angel Fañanas – Director of Corporate Customers and Multinationals in Telefonica Mexico, Héctor Cárdenas – CEO and cofounder of Conekta (conekta.io), and Martin Naor – partner and CEO of Infocorp, we discussed about the digital transformation in the financial industry. What an excellent moment to do it, along with the BBVA Open Talent that looked into promising fin-tech and digital life start-ups. I wanted to take this opportunity to share with you some of my take aways from this panel:
- Banks have a harder time reconciling digital with their legacy platform and infrastructure, and how they have been doing business for many years. Fin-tech start-ups instead are born digital, without any legacy, but they need to be careful not to build one for themselves as they grow.
- Technology doesn’t seem to be the constraint for becoming digital, neither is budget. Banks have much more resources and still we are seeing some interesting start-ups in different aspects of banking disrupting with much better digital propositions. Banks instead need to push the digital concept across the organization, and very tied to the concept of innovation, they need to make fundamental changes in the culture of the organization. This is what banks such as BBVA are trying to do though their Innovation Centers, open API’s, Hackatons and fostering an ecosystem of fin-tech startups in Americas and Europe, and why they partner with Next Bank to propel those.
- Digital also needs to reach to those customers that are still analog. This requires banks to re-imagine their branches and provide solutions that leverage the digital components but understanding the customer engagement required. Banks are quite better positioned than fin-tech start-ups in terms of physical presence, though it is no longer acceptable for banks to continue to open (or update) branches under the old branch paradigm.
- Banks need to better understand what customers really want, and that is not necessarily other financial product, but maybe help with administering their finances, banks helping them to save money, helping SMEs make more business, even expand globally. These are the type of issues fin-tech start-ups are tackling today. Banks have tons of information but they need to become smarter in how they use it and what new services can they offer to their customers. It is also important to look at how customers use technology in their everyday life to find ways of making banking more convenient.
- You just don’t claim that you are going to be more digital and then magically wait for that to happen. There is a lot of effort involved. In cases such as BBVA, acquiring Simple is part of such effort. Understanding the bank limitation in terms of its culture is also important to define what is feasible and what not. Reaching out to understand what the ecosystem is doing, actively engaging and participating to come up with a better digital vision has become an imperative today.
October 8, 2014 by 2 Comments
As an IBM alumnus (but no longer a stockholder) I’ve gotten pretty used to seeing the company do things a certain way. And then I attended a day-long “Watson at Scale (aka Ecosystem 2.0)” event on October 7 and had a lot of my old notions upended. Watson, of course, came to prominence when it won Jeopardy in 2011. Immediately after that IBM began experimenting with a select number of industries (Healthcare, Travel and Retail) to demonstrate proofs of concept and learn what works and what doesn’t. Beginning in January of 2014, Watson expanded dramatically and is now covering 26 industries. IBM proclaims that Watson is the harbinger of a new era of computing, what they call “Cognitive Computing.” There’s just too much information being created today for any single person to digest; Watson aims to “amplify” experts’ capabilities. Doctors, salespeople, and wealth managers are but a few examples. IBM says there are four key attributes to understand:
- Watson understands natural language (computational linguistics).
- Watson is a voracious reader
- Watson provides recommendations with confidence levels
- You don’t program Watson, you teach it
- Consulting to investigate and establish what Watson will do for the firm
- Priced products (e.g., oncology)
- SAAS revenues from running Watson for individual projects
- A cut of the revenue that partners earn from Watson projects
- Is playing the role of an ecosystem platform
- Is using partners to reach consumers, realizing that IBM’s strength is as a B2B company
- Has built a new physical space, reversing a trend of selling real estate and having employees work remotely
- Is not trying to do this on the cheap
- Is focused on just a few areas
February 4, 2014 by Leave a Comment
We just held our 3rd Innovation Roundtable in New York City and the event further underscored how important this area is to financial services institutions. The format of these gatherings is discussion-based and senior leaders from banks and insurers share their experiences in building innovation capabilities in their firms. The New York group included large insurers (all were $5B DWP and above) and a variety of banks, from among the largest in the world to smaller, regional providers. Mick Simonelli, previously the Chief Innovation Officer at USAA, also attended and contributed his experience. Across these firms, there is a real diversity in their approach – a reflection that innovation programs are most successful when they adapt to the culture of a company. One attendee describes their innovation strategy as making big bets only on carefully selected areas that are the highest importance to their company. Another wants to increase their “innovation velocity” and pursues incremental initiatives that, when added together, result in meaningful contributions the short to medium term. In contrast to these differences, the participants agree that that their senior leaders recognize emerging disruptive threats and/or opportunities posed by new entrants, increasing commoditization, and changing consumer expectations. For example, one bank reports that its senior leaders are very actively tracking Amazon’s recent activity offering loans to small businesses. This awareness in these companies is not surprising, since these roundtables are attended by organizations which are already actively pursuing innovation. Most attendees mentioned that they regularly report to their Boards of Directors on their progress. In Celent’s opinion, just the presence of a firm at the roundtable signals that they are building, or on their way to building, a competitive advantage. Without identifying individual participants, here is a sampling of the content of the afternoon:
- One company, in their 5th year of a focused innovation program, describes their current approach as “moving away from the Carnival”, away from event, one-time crowdsourcing ideation efforts and towards making innovation a systemic and continuous part of their business. Their objective is to “create a social layer of innovation.” They were kind enough to detail the technology and process that they have used so far.
- There was agreement that financial services firms advance innovations much too slowly. This has been confirmed in numerous conversations that Celent has had with clients and has also validated our research. In order to address this, one company actively establishes 3rd party partnerships in order to move innovation faster. They partner with startup firms in order to increase their velocity of change.
- A common theme throughout the day was evolving digital capabilities and how other firms, outside of financial services, are changing the customer experience. One firm concentrates on building a “macro view” of what they want their customer to experience. As they improve and innovate their current customer process, they are using this this wider set of considerations to ensure that they remain focused. This is exactly consistent with a recent post on this blog regarding designing digital platforms (see Stop Designing to be a Digital Insurer; Use a Business Value Proposition)
- The attendees were also global, both by birth and by company. They report the greatest adoption of mobile platforms occurs in Asia and in emerging economies. It was also noted that in EMEA, the experience of dealing with multiple languages, cultures and multiple European regulatory regimes increases their companies’ agility and, thus, their innovation capability. For firms that have global operations, concentrating on reverse engineering innovations from one region to another is a valuable investment and a viable strategy.
- During the discussion about changing company culture to further innovation capability, one practitioner noted that innovation leaders have to be very careful about the manner in which they discuss emerging threats (and opportunities) with their business partners. Leaders must be very careful to use what was called “empirical specificity” in such discussions. In other words, before beginning a discussion about an emerging threat or opportunity, an innovation leader must do their homework and be prepared to offer exact examples of actual cases where the threat/opportunity has actually taken place. Otherwise, the communication is ineffective and “Pollyannaish”.
July 11, 2013 by 2 Comments
Celent recently hosted a client event called New Imperatives for Omni-Channel Delivery. Motivated by the convergence of channels, we designed this forum to explore banks’ need to coordinate all the ways they touch customers across the entire set of organizational silos. Celent’s belief is that in the New Normal, retail delivery will never be the same. Retail banking customers are driving the most fundamental change in delivery that the industry has ever seen; these empowered consumers have new knowledge and expectations that are forcing banks to up their game. Additionally, because the way that banks make money is changing radically, banks have no choice but to reconsider their overall system of retail delivery. A large expense for retail banks is their branch network. It will have to change. The branch of the not so distant future is more than just talk this time; it’s not optional. It will entail transaction and sales/service automation; physical re-design; and cultural and organizational change. Moving to this new branch mindset is a journey, not a destination. Results will almost always delivered in increments, not via a “big-bang.” Additionally, branch transformation needs to be executed in a multichannel context, and quickly. Ultimately, this will result in fewer, smaller, more efficient and more effective branches. On the more technology-oriented side, Celent surveys show that mobile banking and multi-channel delivery are “top retail banking technologies.” The tablet will act as a catalyst to the redesign of online banking as online and mobile are growing rapidly in priority. Tablets are unique devices that provide a unique experience and shouldn’t be thought of us simply larger phones. Digital startups are challenging the status quo with slick experiences and innovative business models. In response, banks have to become digital powerhouses; they must take advantage of emerging opportunities and use them complement physical channels. We opened up a free-flowing discussion with a few questions for our banking attendees. We think retail bankers of all stripes will do well to ponder them.
- What is the customer’s perspective?
- How do you coordinate between the branch, digital and other channel teams?
- Do you watch other industries? Who and how?
- What are you doing to grow digital sales?
- How will the role of the branch change in an omni-channel environment?
http://www.regonline.com/builder/site/?eventid=1256874 Additionally, we’ll be hosting a bankers-only roundtable called “Evolve or die: the future of the bank account” in London on October 17. Details at http://www.regonline.com/builder/site/Default.aspx?EventID=1259271 Finally, we’ll be hosting a broader cross-industry event on October 3 in San Francisco. Entitled “What’s Next: The Search for Disruptive Innovation,” you can find out more at http://www.regonline.com/builder/site/Default.aspx?EventID=1237201 Hope to see you there!
May 15, 2013 by 2 Comments
I’m attending Finovate Spring in San Francisco (Finovate.com). We’ve seen a number of great demos, and others that haven’t gone so well. If you think of a classic consultant’s 2×2, with one dimension being strength of the idea and the other the strength of the presenter, probably the most unfortunate quadrant is the one that has a great idea, but shoddy delivery. Here are a few tips to help Finovate speakers give a killer presentation that will have the twittersphere take notice (with apologies to those who prompted the observations):
- First, before you do anything else, State the Problem that you’re trying to solve
- Have a demo that works; extra credit for something live
- Involve the audience, preferably with something live (see #2)
- Have a catchy slogan
- Print catchy slogan on a tee-shirt
- Speak in a Commonwealth accent (Australian, British, Kiwi, South African – they’re all good). Americans think you sound smart
- Avoid using the terms “security,” “identity,” or “authentication.” These are all terribly important, but from a presentation perspective, you’re starting from a hole ten feet deep.
November 30, 2012 by 2 Comments
I spend a fair bit of time analyzing and following the fintech startup scene. I’ve met and interacted with numerous startups over the years, as well as through industry events like Finovate and Innotribe. I frequently get very excited by their potential, and what they can bring to the industry. I admire the founders of these firms as they attempt to make their mark in an age old, highly regulated industry, that is slowly but surely adapting to the popularity of digital channels. Is there a killer fintech startup business model? Here are a handful of models out there that I invite you to weigh in on:
- Should startups go after consumers/businesses directly? This is the most popular model, with most firms taking this type of approach. Examples include Square, Simple, PayPal, etc. It’s also one of the hardest models as it’s quite difficult for a newly minted organization to establish a brand and build critical mass on its own.
- Can startups be successful at enabling others in addition to going after their core market? This is becoming an increasingly popular model as startups seek out new streams of revenue. It’s particularly popular in the payment space as it allows for a potentially increasing stream of transactional revenue. This is done by offering something like an SDK that others can build on. Examples include card.io, Stripe, etc.
- Is the name of the game to simply use financial institutions as a distribution channel? Some startups take this route right out of the gate (e.g. MineralTree, Cardlytics, etc.), while others pivot to this model (e.g. Social Money, Bill.com, etc.). Finally there are startups that simply fall back on this model once they realize that they have been unsuccessful in models 1 or 2. While it sounds great to use a bank as a distribution channel, it can be a frustrating experience given the very long sales cycles typically encountered with financial institutions. Burning cash while attempting to close a deal with a bank can be a tough pill to swallow.
- Can a startup have it all by tackling all three of of the models ? It’s possible but it can also spread a business, particularly a newer one, dangerously thin